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> Why do business take business loan? (Loans)

joway93
post Feb 11 2019, 07:14 PM, updated 2w ago

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Hi gurus, my friend and I recently had a discussion on why businesses would want to borrow money from the bank with such hefty interest rates. Obviously we couldnt convince ourselves that getting a loan is good. What do you think? For example, why would a "mixed rice" store want to borrow money from the bank?
MUM
post Feb 11 2019, 07:22 PM

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QUOTE(joway93 @ Feb 11 2019, 07:14 PM)
Hi gurus, my friend and I recently had a discussion on why businesses would want to borrow money from the bank with such hefty interest rates. Obviously we couldnt convince ourselves that getting a loan is good. What do you think? For example, why would a "mixed rice" store want to borrow money from the bank?
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while waiting for value added responses,.....

try read these for some added info while you wait for responses.'

Why do business borrows.....
https://www.google.com/search?source=hp&ei=...i30.kZqiVwTZ-7E

joeallen19
post Feb 11 2019, 07:25 PM

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Selling 10 eggs more profitable than 5 eggs subjective to the demands
Holocene
post Feb 11 2019, 08:01 PM

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Cash flow.


RyuGW90
post Feb 11 2019, 09:15 PM

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Money rolling
This is common.
By borrowing loan, you can straight away run a big eatery to maximise the profit
NightHeart
post Feb 12 2019, 12:36 AM

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QUOTE(joway93 @ Feb 11 2019, 07:14 PM)
Hi gurus, my friend and I recently had a discussion on why businesses would want to borrow money from the bank with such hefty interest rates. Obviously we couldnt convince ourselves that getting a loan is good. What do you think? For example, why would a "mixed rice" store want to borrow money from the bank?
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When you forked out your own capital, let's say RM100k, to run the biz. Assuming the ROI per annum is 30%, you'll get RM30k profit.

Now, let's say you borrowed RM1m to run the biz & assuming ROI is the same, you'll get RM300k profit. What's the bank's hefty IR? Assuming 10%, then out of that RM300k profit, the bank will take RM100k in IR & RM200k is left for you.

So you wanna keep your own RM100k personal use & use other people's money to earn RM200k? Or do you prefer to use your own RM100k to run the biz & earn RM30k? Earn RM200k or earn RM30k?

Anyway, that's all theoretical talks & assumptions. There's also the possibility of:
- the biz go bust & you owe the bank
- the biz barely breaking even & you're struggling to pay the loan
- the ROI increase tremendously due to economies of scale & you earn even higher

Also, do note that the bank won't lend you money if your biz hasn't been profitable for few years.

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